BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 2940
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          Date of Hearing:   April 9, 2008

                                 Ed Hernandez, Chair
                    AB 2940 (De Leon) - As Amended:  April 3, 2008
          SUBJECT  :   Retirement: California Financial Advantage Account  

           SUMMARY  :   Creates the California Financial Advantage Account  
          Program (CFAAP), under the administration of the California  
          Public Employees' Retirement System (CalPERS) to provide  
          retirement savings opportunities to California's private sector  
          employees.  Specifically, this bill  :  

          1)Establishes, under CalPERS, the CFAAP intended to promote  
            greater retirement savings for Californi private employees in  
            a convenient, low-cost, and portable manner.

          2)Requires CalPERS to offer one or more individual retirement  
            accounts or annuities (IRAs) to eligible employees or eligible  

          3)Defines "eligible employee" to mean a person with an annual  
            income at or below 400% of federal poverty level.

          4)Requires CalPERS to initiate, implement, maintain, and  
            administer the CFAAP, as specified, including employing staff  
            and contracting with third-party administrators as necessary.

          5)Specifies that administrative expenses are to be paid from  
            contributions or investment returns, to the extent permitted  
            under federal law, except for expenditures that are provided  
            through an appropriation from the Legislature.

          6)Requires CalPERS to make reports to the Legislature and to  
            participating employers and individuals on the status of the  

          7)Requires CalPERS to establish a process to allow an employer  
            to forward employee contributions to the CFAAP through the  
            Employment Development Department system currently used to  
            collect payroll taxes.


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          8)Requires CFAAP to be designed to allow employers to make  
            contributions on an employee's behalf or to match an  
            employee's contribution.

          9)Requires CalPERS to obtain the necessary approvals from  
            federal authorities, as specified, to ensure that the  
            implementation of the CFAAP does not jeopardize the status of  
            the existing retirement program for public employees.

          10)Indemnifies, from the General Fund, and holds harmless  
            CalPERS board members and employees, and investment managers  
            under contract with CalPERS, with regard to any decisions or  
            actions made in connection with the CFAAP, as specified.

          11)Specifies that the CFAAP will only be made available once  
            CalPERS receives all the approvals it deems necessary.

           EXISTING LAW  establishes CalPERS to provide pension and health  
          benefits to a variety of public employees, including state,  
          local agency, and classified school employees.

          Existing federal law provides for tax-qualified retirement plans  
          and individual retirement accounts or individual retirement  
          annuities by which private citizens can save money for  

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   The following information was provided by the  
          author's office:

          Currently, more than 70 million American workers do not  
          participate in an employer-sponsored retirement savings plan.  
          The numbers are more staggering for Californians. Today, six  
          million California employees, 41% of the state's workforce, work  
          at a job that does not offer a pension or a retirement savings  
          plan to supplement Social Security. 

          As a result, approximately 40% of today's baby boomers rely on  
          Social Security benefits for more than 90% of their income.  
          However, Social Security payments alone, which average to $901  
          per month in California, will not be enough to sustain  
          Californians in their retirement. This lack of retirement  
          savings may equate to a higher cost for government services, as  
          seniors without savings will be more likely to require  


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          government assistance with housing, medical care and other  

          Particularly, investments in savings accounts from small  
          business, low-income, and/or short-tenured and transferable  
          employees are exceptionally low.

          Only 48% of part-time workers participate in a retirement  
          savings plan. Nearly 65% of low-income workers-those earning  
          less than $40,000-do not participate in employer plans.

          Often, complexity and cost on administering retirement systems  
          prevent many small companies from creating retirement plans for  
          their employees. A majority of firms with fewer than 500  
          employees nationwide do not offer retirement savings options.

          Moreover, though some workers may currently participate in a  
          retirement plan, if that worker moves into a new job with a new  
          business, they often lose access to that same plan. The result  
          is gap coverage.

          Workers today are spending more than they are saving, relying  
          more on credit, and thus accruing debt and risking their future  
          financial security. Nationally, the personal savings rate for  
          individuals has fallen to 0.5 percent of one's income for 2007.  
          At this rate, even with Social Security benefits, Californians  
          will not be able to afford retirement.

          Our savings habits must change, and even a small monthly  
          contribution can create a great financial advantage for  
          Californians.  For example, if a 25 year-old saved $100 a month,  
          or $1,200 annually, with a 6.9% rate of return she would have  
          $233,474 at age 65.

          California workers need a seamless, lifelong retirement savings  
          system, providing them with the opportunity to build their  
          assets and help attain their financial stability through a  
          secure, portable savings account. The California Employee  
          Savings Program will create an option and system to do so,  
          supplementing existing savings options for its workers, at no  
          cost to taxpayers.  While a few states have begun assessing  
          these possibilities, e.g. Washington, Illinois, California would  
          be the first state in the nation to implement and provide this  


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          The Committee is informed that the author will be offering  
          amendments in Committee to change the name of the program from  
          the CFAAP to the California Employee Savings Program and to  
          delete the maximum annual income eligibility threshold in order  
          to create a broader opportunity for employees to participate in  
          additional investment options.


          New America Foundation (Sponsor)
          California Small Business Association
          Sacramento Asian Pacific Chamber of Commerce
          Small Business California

          None on file
          Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)